Digital sales grew 53% in the department store chain’s fiscal Q2, and online sales accounted for 54% of the retailer’s total owned comparable sales.

The bad news: Macy’s Inc. is still losing money. The good news: It’s not losing as much as expected. And, digital sales are helping buffer still-sagging sales, Macy’s reported Wednesday in its fiscal Q2 earnings ended Aug. 1.

The department store chain, No. 15 in the Digital Commerce 360 Top 1000, says digital sales remained strong, growing 53% over its fiscal second quarter 2019. Digital sales accounted for 54% of the retailer’s total owned comparable sales. Sales in physical stores were down 61%.

The company also licenses third parties to operate departments in its stores and online and receives commissions from these third parties based on a percentage of their net sales.

Sales were down 34.7% on an owned basis and down 35.1% on an owned plus licensed basis, roughly in-line with expectations. The department store chain is still losing money and sales remain well below pre-pandemic levels, but CEO Jeff Gennette said demand is picking up across all of its brands. Its adjusted net loss of $251.0 million in the quarter, beating the $538.0 million loss anticipated by analysts.

“Going into this crisis, we had a well-developed digital business and we’re seeing that thrive as we attract new and welcome existing customers back to our brands,” Gennette said. “Our immediate priority is successfully executing holiday 2020. We are also focused on laying the groundwork for 2021 and beyond.” He said Macy’s plans to continue to invest in fashion, digital and omnichannel.

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“The past six months presented challenges that we never imagined,” Gennette said. “It forced us to make significant changes in how we run our business.”

While net revenue fell 35.9% year over year, the drop was an improvement over the prior quarter when it fell approximately 45%.

“Taken in isolation, today’s results from Macy’s would be disastrous,” Neil Saunders, an analyst at GlobalData Retail, said in a note. “However, after a calamitous first quarter, the numbers signal that trade at the iconic department store is starting to come back, even if progress is relatively slow.”

In February, Macy’s announced it would strategically focus on its digital experience, including its ecommerce site, app and omnichannel customer base, and improve profitability. This has not changed, Gennette told investors according to a Seeking Alpha transcript.

“These remain our priorities. But everything on the digital agenda has been accelerated,” Gennette said. “Customers have migrated online at unprecedented rates. By some estimates, retail has seen 10 years of digital growth in just three months.”

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Macy’s uses its stores to fulfill online orders, such as via buy online pick up in store, ship from store and curbside pickup, which it offers at a few locations. Macy’s fulfills about 30% of its digital transactions from stores, the retailer reported.

Macy’s also announced that it acquired 4.0 million new customers to Macys.com in Q2, The lion’s share of those customers—3.8 million—were brand new to the Macy’s brands, meaning they were not previously store or online shoppers. Gennette told investors that these new shoppers are more diverse and much younger than its current customer base. Its mission with these new shoppers is to retain them and make them omnichannel customers, he said.

“We’re using our personalization prowess in order to seed that,” Gennette said. “We’re looking at look-alikes, we’re starting to seed them offers, we’re getting great bites from it; we’re getting these customers into our Bronze loyalty program, which is really strong.”

For its fiscal second quarter ended Aug. 1, Macy’s reported:

  • Net sales of $3.56 billion, a 35.8% decrease compared with $5.55 billion in the same year-ago period.
  • A net loss of $431.0 million, compared with net income of $86.0 million a year earlier.

For its fiscal first half, Macy’s reported:

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  • Net sales of $6.58 billion, a 40.4% decrease compared with $11.05 billion in the same year-ago period.
  • A net loss of $4.01 billion, compared with net income of $223 million a year earlier.
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